PUERTO RICO PETITION FOR WRIT OF CERTIORARI

8/20/2019 PUERTO RICO PETITION FOR WRIT OF CERTIORARI

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No.

IN THE

Supreme Court of the United States

THE COMMONWEALTH OF PUERTO RICO, ALEJANDRO G ARCÍA P ADILLA,

as Governor of the Commonwealth of Puerto Rico,and CÉSAR MIRANDA RODRÍGUEZ, as Secretary of

Justice of the Commonwealth of Puerto Rico,

Petitioners,v.

FRANKLIN C ALIFORNIA T AX-FREE TRUST, et al.,

Respondents.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the First Circuit

PETITION FOR WRIT OF CERTIORARI

CÉSAR MIRANDA RODRÍGUEZ Secretary of Justice

M ARGARITA MERCADOECHEGARAY Solicitor General

DEPARTMENT OF JUSTICECOMMONWEALTH OF

PUERTO RICO P.O. Box 9020192

San Juan, PR 00902

CHRISTOPHER L ANDAU, P.C.Counsel of Record

SUSAN M. D AVIES CLAIRE MCCUSKER MURRAY K IRKLAND & ELLIS LLP655 Fifteenth St., N.W.Washington, DC 20005(202) [email protected]

August 21, 2015


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QUESTION PRESENTEDWhether Chapter 9 of the federal Bankruptcy

Code, which does not apply to Puerto Rico,nonetheless preempts a Puerto Rico statute creatinga mechanism for the Commonwealth’s public utilitiesto restructure their debts.


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PARTIES TO THE PROCEEDINGS BELOWPetitioners, the Commonwealth of Puerto Rico,

Alejandro García Padilla, as Governor of theCommonwealth of Puerto Rico, and César MirandaRodríguez, as Secretary of Justice of theCommonwealth of Puerto Rico, were appellants inthe First Circuit. In addition, Melba Acosta Feboand John Doe, as agents for the GovernmentDevelopment Bank of Puerto Rico, were appellantsin the First Circuit.

Respondents, Franklin California Tax-Free Trust,Franklin New York Tax-Free Trust, Franklin Tax-Free Trust, Franklin Municipal Securities Trust,Franklin California Tax-Free Income Fund, FranklinNew York Tax-Free Income Fund, Franklin FederalTax-Free Income Fund, Oppenheimer RochesterFund, Municipals Oppenheimer Municipal Fund,Oppenheimer Multi-State Municipal Trust,Oppenheimer Rochester Ohio Municipal Fund,Oppenheimer Rochester Arizona Municipal Fund,Oppenheimer Rochester Virginia Municipal Fund,

Oppenheimer Rochester Maryland Municipal Fund,Oppenheimer Rochester Limited Term CaliforniaMunicipal Fund, Oppenheimer Rochester CaliforniaMunicipal Fund, Rochester Portfolio Series,Oppenheimer Rochester Amt-Free Municipal Fund,Oppenheimer Rochester Amt-Free New YorkMunicipal Fund, Oppenheimer Rochester MichiganMunicipal Fund, Oppenheimer RochesterMassachusetts Municipal Fund, OppenheimerRochester North Carolina Municipal Fund,

Oppenheimer Rochester Minnesota Municipal Fund,and BlueMountain Capital Management, LLC, forand on behalf of investment funds for which it acts


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as investment manager, were appellees in the FirstCircuit.

The Puerto Rico Electric Power Authority(PREPA) was a defendant in the district court butwas not a party to the proceedings in the FirstCircuit.


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TABLE OF CONTENTS Page

QUESTION PRESENTED ........................................... i

PARTIES TO THE PROCEEDINGS BELOW ......... iii

INTRODUCTION ........................................................ 1

OPINIONS BELOW .................................................... 3

JURISDICTION .......................................................... 4

PERTINENT STATUTORY PROVISIONS ............... 4

STATEMENT OF THE CASE .................................... 4 A. Background ........................................................ 4

B. Proceedings Below ............................................. 8

REASONS FOR GRANTING THE WRIT .................. 9

I. Section 903(1) Does Not Preempt The Recovery Act. .......................................................................... 9

A. The Text, Structure, And History Of Section903(1) Neither Compel Nor Allow AConclusion Of Preemption. .............................. 10

B. Background Preemption PrinciplesUnderscore That Section 903(1) Does NotPreempt The Recovery Act. ............................. 21

II. This Court Should Review This ImportantQuestion Of Federal Law. .................................... 27

CONCLUSION .......................................................... 29


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APPENDIX CONTENTSFirst Circuit opinion,

July 6, 2015 ............................................................ 1a

District Court opinion,February 6, 2015 .................................................. 69a

Recovery Act (Official English version) ................ 138a

Pertinent statutory provisions ............................. 272a


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TABLE OF AUTHORITIESPage(s)

Cases

Abbott v. United States,562 U.S. 8 (2010) ............................................ 13

Ashton v. Cameron Cty. Water Imp. Dist. No. 1,298 U.S. 513 (1936)................................... 25, 27

BFP v. Resolution Trust Corp.,511 U.S. 531 (1994)......................................... 21

Bond v. United States,134 S. Ct. 2077 (2014) .............................. 21, 22

City of Pontiac Retired Emps. Ass’n v. Schimmel,751 F.3d 427 (6th Cir. 2014)(en banc; per curiam) ...................................... 11

Cohen v. de la Cruz,523 U.S. 213 (1998)................................... 16, 17

Doty v. Love,295 U.S. 64 (1935) .......................................... 25

Faitoute Iron & Steel Co. v. Asbury Park, N.J.,316 U.S. 502 (1942)............................. 17, 22, 26

FDA v. Brown & Williamson,529 U.S. 120 (2000)......................................... 10

Graham Cty. Soil & Water Conserv. Dist. v.

United States ex rel. Wilson,559 U.S. 280 (2010)......................................... 10

Gregory v. Ashcroft,501 U.S. 452 (1991)......................................... 21

Hanover Nat’l Bank v. Moyses,186 U.S. 181 (1902)......................................... 24


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Kellogg Brown & Root Servs. Inc. v.United States ex rel. Carter,135 S. Ct. 1970 (2015) .................................... 16

King v. Burwell,135 S. Ct. 2480 (2015) .................................... 10

Neblett v. Carpenter,305 U.S. 297 (1938)......................................... 24

Ogden v. Saunders,12 Wheat. (25 U.S.) 213 (1827) ...................... 23

Puerto Rico Dep’t of Consumer Affairs v.Isla Petroleum Corp.,485 U.S. 495 (1988)......................................... 21

Rice v. Santa Fe Elevator Corp.,331 U.S. 218 (1947)......................................... 21

Richards v. United States,369 U.S. 1 (1962) ............................................ 10

Samantar v. Yousuf ,560 U.S. 305 (2010)......................................... 10

Stellwagen v. Clum,245 U.S. 605 (1918)......................................... 24

Sturges v. Crowninshield,4 Wheat. (17 U.S.) 122 (1819) ........................ 23

United States v. Bekins,304 U.S. 27 (1938) .............................. 25, 26, 27

United States v. Morrow,266 U.S. 531 (1925)......................................... 13

Whitman v. American Trucking Ass’ns,531 U.S. 457 (2001)......................................... 17

Constitution, Statutes, and Rules

U.S. Const. art. I, § 8, cl. 4 ........................................ 23


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11 U.S.C. § 101(40) .................................................... 1011 U.S.C. § 101(52) .................................... 5, 11, 15, 20

11 U.S.C. § 109(c) ........................................................5

11 U.S.C. § 901 et seq. ......................................... 10, 11

11 U.S.C. § 903 .............................................. 10, 12-15

11 U.S.C. § 903(1) .............................................. 2, 8-21

18 U.S.C. § 924(c) ...................................................... 13

28 U.S.C. § 1254(1) ......................................................4

Act of June 22, 1938, 75th Cong., 3d Sess.,52 Stat. 840 (1938) .................................... 16, 20

Act of May 24, 1934, 73rd Cong., 2d Sess.,48 Stat. 798 (1934) .......................................... 25

Bankruptcy Act of 1898, 55th Cong., 2d Sess.,30 Stat. 544 (1898) .......................................... 24

Pub. L. No. 98-353, 98 Stat. 333 (1984) .................... 16

2014 P.R. Laws Act No. 71, § 115(b) ........................... 7

2014 P.R. Laws Act No. 71, § 202(a) ........................... 6

2014 P.R. Laws Act No. 71, § 202(d) ........................... 7

2014 P.R. Laws Act No. 71, § 202(d)(2)(A) ................. 6

2014 P.R. Laws Act No. 71, § 202(d)(2)(B) ................. 6

2014 P.R. Laws Act No. 71, § 301 ............................... 7

2014 P.R. Laws Act No. 71, § 302 ............................... 7

2014 P.R. Laws Act No. 71, § 304 ............................... 7

2014 P.R. Laws Act No. 71, § 310 ............................... 7

2014 P.R. Laws Act No. 71, § 312 ............................... 7

2014 P.R. Laws Act No. 71, § 315(d) ........................... 7

2014 P.R. Laws Act No. 71, § 315(e) ........................... 7


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General Law of Pennsylvania (1836)........................ 24Laws of the Territory of Michigan (1827) ................. 24

Statutes of the State of Ohio of a General Nature(1854) ............................................................... 24

S. Ct. R. 10(c) ......................................................... 3, 27

Other Authorities

Corkery, Michael & Walsh, Mary Williams, Puerto Rico’s Governor Says Island’s

Debts Are “Not Payable,” N.Y. TIMES, June 28, 2015 .............................. 28

H.R. Rep. No. 79-2246 (1946) .................................... 18

Hearings on H.R. 4307 ,79th Cong. 16 (1946) ....................................... 18

Lubben, Stephen J., Puerto Rico & The Bankruptcy Clause,88 Am. Bankr. L.J. 553 (2014) 15, 19-20, 23-24

Mayer, Thomas Moers,State Sovereignty, State Bankruptcy,

& A Reconsideration of Chapter 9 ,85 Am. Bankr. L.J. 363 (2011) ....................... 13

S. Rep. No. 95-989 (1978) .................................... 18, 19


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INTRODUCTIONThis case involves Puerto Rico’s ability to respond

to the most acute fiscal crisis in its history. TheCommonwealth’s three major public utilities, whichprovide electricity, water, and roads for its citizens,have a combined debt of some $20 billion, which theycannot pay. But neither can those utilities simplyshut down the electricity, or the water, or the roads.The utilities thus need to restructure their debts in away that is fair not only to their creditors but also tothe people they serve.

The decision below, however, holds that PuertoRico—unlike the fifty States—lacks access to any legal mechanism to restructure the debts of its publicutilities. It is undisputed that, since 1984, thefederal Bankruptcy Code has precluded Puerto Ricofrom authorizing its “municipalities”—including, asrelevant here, its public utilities—from restructuringtheir debts under Chapter 9 of the Code. But justbecause Puerto Rico’s public utilities cannotrestructure their debts under federal law does not

mean that they cannot restructure their debts underCommonwealth law. Nothing in the federalBankruptcy Code purports to leave a jurisdiction,like Puerto Rico, that is outside the scope ofChapter 9 in a “no man’s land” where its publicutilities cannot restructure their debts under either federal law or its own law.

To the contrary, it has been settled since theearliest days of the Republic that States andTerritories have the power to enact their own

restructuring laws. And it is equally settled thatentities excluded from the federal BankruptcyCode—such as banks and insurance companies—are


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not thereby foreclosed from restructuring their debtsunder state or territorial law. There is thus no basisto conclude that the exclusion of Puerto Rico fromChapter 9 represents a limitation on theCommonwealth’s power to create its own mechanismfor restructuring the debts of its public utilities.Here, Puerto Rico exercised that power by enacting astatute—the Recovery Act—that creates such arestructuring mechanism.

The First Circuit, however, held that Puerto Ricohas the worst of both worlds: it is not entitled to thebenefits of Chapter 9, but remains subject to theburdens of Chapter 9. In particular, the First Circuitheld that 11 U.S.C. § 903(1)—a provision of Chapter9 that sharply limits the ability of jurisdictionswithin the scope of that Chapter to restructure theirdebts beyond the scope of that Chapter—preemptsthe Recovery Act.

The court thereby turned Chapter 9 on its head.Section 903(1) is part and parcel of Chapter 9: on theone hand, Congress created a federal mechanism for

States to restructure their municipal debts while, onthe other, Congress limited their ability torestructure those debts outside that mechanism. Itmakes no sense to read a limitation on Chapter 9 toapply to a jurisdiction, like Puerto Rico, that isoutside the scope of that Chapter in the first place.

Indeed, it is anomalous in the extreme to thinkthat Congress— sub silentio and through anamendment to a statutory definition—foreclosedPuerto Rico from access to any legal mechanism for

restructuring the debts of its public utilities, whichprovide basic and essential services to its citizens.Nor is it any answer to assert, as did the First


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Circuit, that Puerto Rico can always ask Congress tochange the law: the question here is whether the lawshould be interpreted in such an anomalous anddraconian manner in the first place.

This is one of the rare cases that calls for thisCourt’s immediate review even in the absence of aconflict among the lower courts. Given theanomalous treatment of Puerto Rico in the federalBankruptcy Code, no circuit split is realisticallypossible here. And anyone who has even glanced atthe headlines in recent months knows that theCommonwealth is in the midst of a financialmeltdown that threatens the island’s future. Byholding that the federal Bankruptcy Code precludesPuerto Rico’s public utilities from restructuring theirdebts not only under federal law but also underCommonwealth law, the First Circuit decided “animportant question of federal law that has not been,but should be, settled by this Court.” S. Ct. R. 10(c).

And because that decision leaves Puerto Rico’s publicutilities, and the 3.5 million American citizens who

depend on them, at the mercy of their creditors, thisCourt’s review is warranted—and soon.

OPINIONS BELOW

The First Circuit’s decision has not yet beenpublished in the Federal Reporter, but is reported at2015 WL 4079422 and reprinted in the Appendix(“App.”) at 1-68a. Similarly, the district court’sopinion has not yet been published, but is reported at2015 WL 522183 and reprinted at App. 69-137a.


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JURISDICTIONThe First Circuit issued its decision on July 6,

2015. App. 1-2a. This Court has jurisdiction under28 U.S.C. § 1254(1).

PERTINENT STATUTORY PROVISIONS

Pertinent statutory provisions are set forth in the Appendix.

STATEMENT OF THE CASE

A. Background

This case arises out of a fiscal crisis that hascrippled Puerto Rico. See Recovery Act Stmt. ofMotives, App. 139-40a. In recent years, theCommonwealth has faced an economic recession,high unemployment, and a declining population, allof which have contributed to a declining tax base anddecreased revenues. Id., App. 147-48a. In January2013, the Commonwealth’s deficit for fiscal year2012-13 was projected to exceed $2.2 billion. Id.,

App. 139a. Even after significant budget cuts, thedeficit for that fiscal year ultimately exceeded $1.2billion. Id. And, despite additional fiscal disciplinemeasures approved by the Legislative Assembly, thedeficit for the 2013-14 fiscal year reached $650million. Id. Under these circumstances, theLegislative Assembly declared a state of “fiscalemergency” early last year. Id., App. 144-45a, 166a.

The fiscal crisis has hit the Commonwealth’spublic utilities particularly hard. The combineddeficit of the three main public utilities in fiscal year2012-13 was approximately $800 million, and their

overall combined debt reached $20 billion. Id., App.139-40a. For the first time in the Commonwealth’shistory, the principal rating agencies downgraded


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the Commonwealth’s general obligation bonds (andthe bonds of most of its public utilities) to belowinvestment grade. Id., App. 141a. The attendantincreases in interest rates, along with the reductionin access to capital markets, have further limitedthese corporations’ liquidity and financial flexibility.Id., App. 141-42a.

Among the public corporations most acutelyaffected by the current fiscal crisis is the Puerto RicoElectric Power Authority (PREPA), which employsover 7,000 people and supplies virtually all of theCommonwealth’s electric power. In recent years,PREPA has experienced severe reductions in its netrevenues and has incurred net losses and cash flowshortfalls due to the prolonged weakness in theCommonwealth’s macroeconomic conditions (highenergy, labor, and maintenance costs) andinvestments in capital improvements. Id., App. 145-46a. PREPA’s utility rates, which are twice theaverage rate in the continental United States, haveadversely affected the Commonwealth’s economic

development and stifled necessary capitalinvestments. Id., App. 146-47a.

When faced with similar crisis conditions, the fiftyStates may authorize their public utilities torestructure under Chapter 9 of the federalBankruptcy Code. See 11 U.S.C. § 109(c), App. 274-75a. Puerto Rico’s public utilities, in contrast, arecategorically excluded from restructuring their debtsunder Chapter 9. See 11 U.S.C. § 101(52), App. 273a.

Accordingly, the Commonwealth enacted theRecovery Act last year to allow those entities torestructure their debts in a fair and orderly manner.See Recovery Act Stmt. of Motives, App. 149-55a. As


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the Legislative Assembly explained, “the currentfiscal emergency situation requires legislation thatallows public corporations, among other things, (i) toadjust their debts in the interest of all creditorsaffected thereby, (ii) provides procedures for theorderly enforcement and, if necessary, therestructuring of debt in a manner consistent with theCommonwealth Constitution and the U.S.Constitution, and (iii) maximizes returns to allstakeholders by providing them going concern valuebased on each obligor’s capacity to pay.” Id., App.

154a. The Act thus creates a mechanism for PuertoRico’s public corporations to restructure their debtsso that they can continue to provide essential publicservices like dependable electricity and clean waterwhile at the same time protecting their creditors.Id.; see also id., App. 144a (Recovery Act will allowpublic corporations to continue to provide “servicesnecessary and indispensable for the populace”).

To that end, the Act establishes two types ofprocedures to address a public corporation’s debt

burden. The first, set forth in Chapter 2, is amarket-based approach that contemplates limitedcourt involvement. See id. Ch. 2, App. 157-60a(summary), 210-20a. Under this Chapter, a publiccorporation chooses debts to renegotiate with itscreditors. See id. § 202(a), App. 211a. Creditorsrepresenting at least 50% of the debt in a given classmust participate in the vote on whether to acceptthose changes, and at least 75% of participants mustapprove them. See id. § 202(d)(2)(A)-(B), App. 213a.Once Puerto Rico’s Government Development Bank

(GDB) and a specialized court established by the Actapprove the consensual debt relief transaction, theinstruments governing the creditors’ claims are


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deemed amended to reflect the renegotiated terms.See id. § 202(d), App. 212-13a; id. § 115(b), App. 187-88a.

The Act also allows Puerto Rico’s public utilities toseek relief under Chapter 3, which involvesenhanced judicial oversight and is modeled onChapter 9 of the federal Bankruptcy Code. Id., App.160-64a (summary); App. 221-71a. To file underChapter 3, a public utility files a petition thatincludes a list of affected creditors and a schedule ofclaims, which stays a broad range of actions againstthe petitioner. See id. §§ 301, 302, 304, App. 221-27a. Either the GDB or the petitioner must then filea proposed plan or proposed transfer of the utility’sassets, which the court can confirm only if it“provides for every affected creditor in each class ofaffected debt to receive payments and/or propertyhaving a present value of at least the amount theaffected debt in the class would have received if allcreditors holding claims against the petitioner hadbeen allowed to enforce them on the date the petition

was filed.” Id. §§ 310, 315(d), App. 234a, 238a. Atleast one class of affected debt must accept the planwith a majority of all votes cast and with the supportof at least two-thirds of affected debt in the class.See id. §§ 312, 315(e), App. 235-36a, 238a. As underChapter 2, all affected creditors are bound by theplan after it is approved by the specialized court. Seeid. § 115(b), App. 187-88a.

The Puerto Rico Legislature passed the Recovery Act on June 25, 2014, and the Governor signed it intolaw just three days later.


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B.

Proceedings BelowOn June 28, 2014—the very day that the Governor

signed the Recovery Act into law—some of therespondents (investment funds that hold PREPAbonds) filed a lawsuit challenging the Act’s validityand seeking declaratory and injunctive relief.Several weeks later, the remaining respondents (alsoPREPA bondholders) filed a similar lawsuit. Thelawsuits alleged, among other things, that theRecovery Act is preempted by Section 903(1), aprovision of Chapter 9 of the Bankruptcy Code.

In February 2015—without hearing oralargument—the district court (Besosa, J.) deniedpetitioners’ motion to dismiss, granted summary

judgment to the respondents who had requested it,and permanently enjoined petitioners from enforcingthe Recovery Act. See App. 69-137a. As relevanthere, the court agreed with respondents that the Actis preempted by Section 903(1), even thoughChapter 9 does not apply to Puerto Rico in the firstplace. See App. 94-111a.

Petitioners appealed, but the First Circuitaffirmed. See App. 1-68a. The panel majority agreedwith the district court that Section 903(1) expresslypreempts the Recovery Act, see App. 21-41a, and inaddition held that the Act would frustrate thepurpose of that provision, see App. 41-43a. JudgeTorruella concurred in the judgment invalidating theRecovery Act, but opined that Chapter 9 isunconstitutional insofar as it excludes Puerto Ricofrom its scope. See App. 46-68a.

This petition follows.


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REASONS FOR GRANTING THE WRITI. Section 903(1) Does Not Preempt The

Recovery Act.

The decision below reflects a fundamentalmisunderstanding not only of federal bankruptcy lawbut also of federalism. The First Circuit wrenched asingle provision of Chapter 9—Section 903(1)—fromits statutory context and treated it as a free-floatingprovision of the U.S. Code. The court therebyviolated basic principles of statutory interpretation.

Section 903(1) is a proviso to a clause that does notapply to Puerto Rico, located within a chapter of theBankruptcy Code that does not apply to Puerto Rico.The statutory context thus makes clear that Section903(1) does not apply to Puerto Rico, and the historyof that provision only confirms the point.

That point is further reinforced by backgroundpreemption principles, which apply with full force toPuerto Rico. In our federal system, the general ruleis that Congress does not lightly displace thelegislative powers of the States and Territories, andthere is no indication that it wished to do so here.

And it is particularly implausible to assume thatCongress meant to deprive Puerto Rico’s publicutilities—which provide the Commonwealth’s peoplewith essential public services like electricity, water,and roads—of any legal mechanism to restructuretheir debts, thereby leaving them at the mercy oftheir creditors. If Congress wanted Chapter 9 to bethe sole method of restructuring municipal debt,even for jurisdictions categorically ineligible for

Chapter 9 relief, it could and would have said so.


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A.

The Text, Structure, And History OfSection 903(1) Neither Compel Nor Allow

A Conclusion Of Preemption.

The decision below violates the cardinal rule thatcourts must read the words of a statute “‘in theircontext and with a view to their place in the overallstatutory scheme.’” King v. Burwell, 135 S. Ct. 2480,2489 (2015) (quoting FDA v. Brown & Williamson,529 U.S. 120, 133 (2000)). “Our duty, after all, is ‘toconstrue statutes, not isolated provisions.’” Id. (quoting Graham Cty. Soil & Water Conserv. Dist. v.United States ex rel. Wilson, 559 U.S. 280, 290(2010)). This is hardly a novel or controversialproposition. See id. at 2497 (Scalia, J., joined byThomas & Alito, JJ., dissenting) (“I wholeheartedlyagree with the Court that sound interpretationrequires paying attention to the whole law, nothoming in on isolated words or even isolatedsections. Context always matters.”); see alsoSamantar v. Yousuf , 560 U.S. 305, 319 (2010);Richards v. United States, 369 U.S. 1, 11 (1962).

Chapter 9 of the Bankruptcy Code exists to permita municipality— i.e., a “political subdivision or publicagency or instrumentality of a State,” 11 U.S.C.§ 101(40), App. 272a—to restructure its debts underfederal law. Every section of Chapter 9 works inservice to that end. See 11 U.S.C. §§ 901-46. Section903(1) is no exception. Section 903 expressly“reserve[s] … State power to control municipalities,”11 U.S.C. § 903, App. 279a, and Section 903(1)ensures that States eligible to participate inChapter 9 cannot undermine the federal scheme bylimiting the relief that they can provide theirmunicipalities under state law.


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The First Circuit, however, focused myopically onSection 903(1), as if that provision resolved this case.See App. 21-41a. But the Commonwealth has neverdisputed that Section 903(1), if applicable to PuertoRico, would preempt the Recovery Act. By its terms,that provision specifies that “a State law prescribinga method of composition of indebtedness of [a]municipality may not bind any creditor that does notconsent to such composition.” 11 U.S.C. § 903(1),

App. 279a. The question here, however, is notwhether Section 903(1), if applicable, would preempt

the Recovery Act, but whether Section 903(1) appliesto Puerto Rico in the first place.

The answer to that question is “no.” Section 903(1)is not a standalone part of the U.S. Code. To thecontrary, it is a proviso to Section 903, which in turnis part of Chapter 9. And the entire point of Chapter9, as noted above, is to create a mechanism for amunicipality to restructure its debts under federallaw, see id. §§ 901-46; see also City of Pontiac RetiredEmps. Ass’n v. Schimmel, 751 F.3d 427, 433 (6th Cir.

2014) (en banc; per curiam) (McKeague, J., joined byBatchelder, C.J., concurring) (“[Section] 903(1) doesnot exist in a vacuum,” but “is part of, and in fact anexception to, the main point of a longer sentence.”)(emphasis in original).

The First Circuit did not, and could not, deny thatPuerto Rico’s municipalities are categoricallyineligible to restructure their debts under Chapter 9.See id. § 101(52), App. 273a. For that reason, thereis no basis to apply Section 903(1), which isconcededly part of Chapter 9, to those municipalities.Chapter 9 offers States—but not Puerto Rico—theoption of allowing their municipalities to seek federal


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bankruptcy protection. In exchange for providingthat federal option, Congress limited the relief thatStates could provide those municipalities under theirown laws. See id. § 903(1), App. 279a. In otherwords, Congress required States to take the bitterwith the sweet. There is absolutely nothing in thetext, structure, or history of the statute to suggestthat Congress required Puerto Rico to take only thebitter without the sweet: a limitation on the relief itcan provide municipalities under its own law without the option of authorizing those municipalities to

restructure their debts under federal law.Indeed, Section 903 has no legal or logical

application to a jurisdiction, like Puerto Rico, thatcannot authorize its municipalities to seek reliefunder Chapter 9. By its terms, Section 903 specifiesthat “[t]his Chapter [i.e., Chapter 9] does not limit orimpair the power of a State to control, by legislationor otherwise, a municipality of or in such State in theexercise of the political or governmental powers ofsuch municipality, including expenditures for such

exercise.” Id. § 903, App. 279a (emphasis added).That “Reservation of State power to controlmunicipalities” does not apply to Puerto Rico, whichcannot authorize its municipalities to seek reliefunder “this chapter.” Id. Chapter 9, in other words,cannot “limit or impair” the power of a jurisdiction towhich it does not apply in the first place. Id.Because Section 903 simply negates an inferencethat cannot apply to Puerto Rico, Section 903 doesnot apply to Puerto Rico: it would be nonsensical forCongress to provide Puerto Rico with a shield

against intrusion by a Chapter that, by definition,can have no effect on Puerto Rico.


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And Section 903(1), by its plain terms, is nothingmore than a proviso to Section 903. In particular,Section 903(1) excepts certain relief from the “powerof a State to control ... a municipality of or in suchState” that is otherwise “[r]eserv[ed]” by Section 903.11 U.S.C. § 903, App. 279a. Thus, if Section 903 doesnot apply to Puerto Rico, it follows that Section903(1) does not apply to Puerto Rico either. See, e.g.,United States v. Morrow, 266 U.S. 531, 534-35 (1925)(“[A proviso’s] grammatical and logical scope isconfined to the subject matter of the principal

clause.”); id. at 535 (“[T]he presumption is that, inaccordance with its primary purpose, [a proviso]refers only to the provision to which it is attached.”);

Abbott v. United States, 562 U.S. 8, 30 (2010) (“As aproviso attached to § 924(c), the ‘except’ clause ismost naturally read to refer to the conduct § 924(c)proscribes.”); Thomas Moers Mayer, StateSovereignty, State Bankruptcy, & A Reconsideration

of Chapter 9 , 85 Am. Bankr. L.J. 363, 379 n.84 (2011)(“[Section 903(1)] appears as an exception to § 903’srespect for state law in chapter 9 and thus appears toapply only in a chapter 9 bankruptcy.”). Indeed,Section 903(1) includes a textual reference (“suchmunicipality”) back to Section 903, therebyunderscoring that the two provisions not only may but must be read in tandem. 11 U.S.C. § 903(1), App.279a.

The First Circuit never sought to explain howSection 903 applies to Puerto Rico, or how Section903(1) applies to Puerto Rico if Section 903 does not.Instead, the First Circuit caricatured petitioners’

contextual argument, asserting that it would requirethe court to “accept one of the two followingpropositions: Either states that do not authorize


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their municipalities to file for Chapter 9 relief aresimilarly ‘exempted,’ and so not barred by § 903(1)from enacting their own bankruptcy laws. Or theavailability of Chapter 9 relief for statemunicipalities, regardless of whether a particularstate chooses to exercise the option, occupies the fieldof nonconsensual municipal debt restructuring, and§ 903(1) merely aims to clarify that the operativeclause of § 903 does not undermine that backgroundassumption.” App. 40a. But petitioners’ contextualinterpretation of § 903(1) does not require acceptance

of either proposition.The first proposition is a straw man because

petitioners’ contextual interpretation rests on thepremise that Section 903(1) does not apply to a

jurisdiction, like Puerto Rico, that is categoricallyineligible to invoke the Chapter 9 restructuringregime. The interpretation thus has no applicationto the States, which always have the option ofauthorizing their municipalities to file underChapter 9, even if they decline to exercise that

option. It does not follow, thus, that if Section 903(1)does not apply to Puerto Rico, then Section 903(1)does not apply to a State that has not authorized itsmunicipalities to seek Chapter 9 protection.

The second proposition is simply perplexing,because petitioners’ contextual interpretation doesnot involve “field preemption,” or any other form ofpreemption. To the contrary, it recognizes alimitation on a provision, Section 903(1), thatotherwise would have preemptive effect: thatprovision cannot apply more broadly than theprincipal clause that it modifies. The First Circuit’sassertion that “ironically, it is [petitioners’]


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argument which relies on the notion of fieldpreemption,” App. 40a, is thus baffling.

Similarly, the First Circuit begged the question byasserting that “[i]f Congress had wanted to alter theapplicability of § 903(1) to Puerto Rico, it easily couldhave written § 101(52) to exclude Puerto Rico lawsfrom the prohibition of § 903(1).” App. 28a (internalquotation omitted). Congress wrote Section 101(52)in a way that renders Puerto Rico municipalitiescategorically ineligible for Chapter 9 relief byprecluding Puerto Rico from authorizing them toseek such relief. Congress thereby took Puerto Ricooutside the scope of Chapter 9: the word “State”appears nowhere in that Chapter besides Section903, and—as explained above—Section 903 (andhence Section 903(1)) has no application to a

jurisdiction, like Puerto Rico, that cannot authorizeits municipalities to seek Chapter 9 relief. IfCongress had wanted Section 903(1) to bind PuertoRico, it hardly could have expressed that intent in amore roundabout way than through an exception to a

rule that does not apply to Puerto Rico in a Chapterof the Code that does not apply to Puerto Rico.

The far more natural interpretation is thatChapter 9’s reorganization regime neither encompasses Puerto Rico nor displacesCommonwealth law. See Stephen J. Lubben, PuertoRico & The Bankruptcy Clause, 88 Am. Bankr. L.J.553, 576 (2014) (“[S]ection 903 was only intended toapply to debtors who might actually file underchapter 9.”). In other words, Congress created amechanism for States to allow their municipalities torestructure their debts under federal law, andthereafter limited the relief that States could provide


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those same municipalities under state law. Nothingin Section 903(1), or any other provision of theBankruptcy Code, suggests that Congress sought todisplace state restructuring law where federalrestructuring law is unavailable.

The First Circuit’s reliance on the history ofSection 903(1) is equally misplaced. The court placedgreat weight on the fact that Puerto Rico, like otherother territories and possessions, was includedwithin the definition of “State” from 1938 until theoverhaul of the Bankruptcy Code in 1978. App. 16a& n.12, 26a (citing Act of June 22, 1938, Ch. 575§ 1(29), 75th Cong., 3d Sess., 52 Stat. 840, 842(1938)) (defining “State” in relevant part to “includethe territories and possessions to which this title isor may hereafter be applicable, Alaska, and theDistrict of Columbia”). It follows, the First Circuitdeclared, that Puerto Rico was covered by Section903(1) at that time, and there is no indication thatCongress intended to “‘erode past bankruptcypractice’” when, in 1984, it precluded Puerto Rico

from authorizing its municipalities to restructuretheir debts under Chapter 9. App. 4a, 23-24a(quoting Cohen v. de la Cruz, 523 U.S. 213, 221(1998)). “‘Fundamental changes in the scope of astatute are not typically accomplished with so subtlea move.’” App. 4a, 26-27a (quoting Kellogg Brown &Root Servs. Inc. v. United States ex rel. Carter, 135S. Ct. 1970, 1977 (2015)).

But there was nothing at all “subtle” aboutCongress’ enactment of a new definition of “State” in1984. See Bankruptcy Amendments & FederalJudgeship Act of 1984, Pub. L. No. 98-353,§ 421(j)(6), 98 Stat. 333 (1984). Congress thereby


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expressly and substantially altered the reach of theCode. Because Congress unquestionably “erode[d]past bankruptcy practice,” Cohen, 523 U.S. at 221, bystripping Puerto Rico of the benefits of Chapter 9,there is no reason to suppose that Congress intendedto preserve past bankruptcy practice by continuing tosubject Puerto Rico to the burdens of Chapter 9. Inshort, if there is any “elephant” hidden in a“mousehole” here, see Whitman v. AmericanTrucking Ass’ns, 531 U.S. 457, 468 (2001), it is thesuggestion that Congress’ decision to preclude Puerto

Rico municipalities from restructuring their debtsunder Chapter 9 leaves those municipalities subjectto limitations in Chapter 9 that preclude them fromrestructuring their debts under any legal regime.

The legislative history also provides no support forthe decision below. As the First Circuitacknowledged, “[t]he legislative history is silent as tothe reason for the exception set forth in the 1984amendment.” App. 28a. Thus, nothing in thelegislative history suggests that Congress intended

the 1984 amendment to deny Puerto Ricomunicipalities access not only to Chapter 9 but toany legal mechanism to restructure their debts.

Nor, contrary to the First Circuit’s suggestion, see App. 24-28a, does the legislative history of Section903(1)—which predates the 1984 amendment— support the decision below. The precursor to Section903(1) was first added to the U.S. Code in 1946, inthe wake of a decision by this Court holding that theenactment of Chapter 9 did not preempt statemunicipal-restructuring laws. See Faitoute Iron &Steel Co. v. Asbury Park, N.J., 316 U.S. 502, 508-09(1942). The legislative history of the 1946


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amendment showed that Congress wanted to expandthe preemptive scope of Chapter 9:

State adjustment acts have been held to bevalid, but a bankruptcy law under whichbondholders of a municipality are requiredto surrender or cancel their obligationsshould be uniform throughout the 48States, as the bonds of almost everymunicipality are widely held. Only undera Federal law should a creditor be forcedto accept such an adjustment without hisconsent.

H.R. Rep. No. 79-2246, at 4 (1946). And, whenCongress retained and recodified this provision aspart of an overhaul of the Bankruptcy Code in 1978,it noted that “[d]eletion of the provision would permitall States to enact their own versions of Chapter IX,... which would frustrate the constitutional mandateof uniform bankruptcy laws.” S. Rep. No. 95-989, at110 (1978) (internal quotation omitted).

But none of this legislative history says anythingabout what happens where, as here, Congress itself departs from the uniformity of federal bankruptcylaw by excluding a jurisdiction, like Puerto Rico,from Chapter 9. To the contrary, the legislativehistory of Section 903(1) presupposes the availabilityof a federal mechanism for restructuring municipaldebts. See Hearings on H.R. 4307 , 79th Cong. 16(1946) (statement of Millard Parkhurst) (precursor toSection 903(1) intended to prevent States from“hav[ing] their bankruptcy laws running right along

at the same time as [Chapter 9]”). And that isperfectly understandable because, at the time thelegislative history was written, no jurisdiction was


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excluded from Chapter 9. Insofar as Section 903(1)was motivated by a concern that state municipalbankruptcy laws might “frustrate the constitutionalmandate of uniform bankruptcy laws,” S. Rep. No.95-989, at 110 (1978), that concern sheds no light onthe consequences of Congress’ decision to exclude a

jurisdiction from the scope of Chapter 9, whichrepresents a departure from the uniformity of federalbankruptcy law. In short, the First Circuit vastlyoverread the legislative history of Section 903(1) toresolve an issue it did not address.

For that reason, the First Circuit’s distinct“conflict preemption” argument also fails. See App.41-43a. The First Circuit held that, quite apart fromthe text of Section 903(1), “[c]onflict preemptionapplies here because the Recovery Act frustratesCongress’s undeniable purpose in enacting § 903(1).”

App. 42a. The court based that holding on thepremise that, in light of the legislative history quotedabove, “Congress quite plainly wanted a singlefederal law to be the sole source of authority if

municipal bondholders were to have their rightsaltered without their consent.” Id. But that premiseis baseless. As noted above, nothing in thelegislative history suggests that Congress wantedChapter 9 to be the sole recourse for debtors excluded from Chapter 9.

The Recovery Act represents Puerto Rico’sconsidered decision to fill the gap left by theinapplicability of Chapter 9 to the Commonwealth’spublic utilities. See Lubben, Puerto Rico & The

Bankruptcy Clause, 88 Am. Bankr. L.J. at 567(“Puerto Rico’s new Recovery Act is addressed to aclass of debtors who are expressly excluded from


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chapter 9 of the Bankruptcy Code by virtue of theexclusion of Puerto Rico from the definition of State‘for the purpose of defining who may be a debtorunder chapter 9.’ As such, there is no way for theRecovery Act to conflict with chapter 9 in violation ofCongress’ powers under the Bankruptcy Clause.”);id. at 577 (“[I]t is emphatically possible to apply theRecovery Act and the Bankruptcy Codesimultaneously, because the Bankruptcy Code hasnothing to say about Puerto Rican municipalcorporations. The two laws are mutually

exclusive.”).Indeed, the First Circuit’s broad and non-textual

“conflict preemption” theory works considerablecollateral damage with respect to other possessionsand territories. Only Puerto Rico and the District ofColumbia are encompassed in any way by theBankruptcy Code’s current definition of “State,” see 11 U.S.C. § 101(52), App. 273a—in sharp contrast tothe Code’s previous definition of “State,” which (asnoted above) included “the Territories and

possessions to which this Act is or may hereafter beapplicable, Alaska, and the District of Columbia,” Actof June 22, 1938, Ch. 575 § 1(29), 75th Cong., 3dSess., 52 Stat. 840, 842 (1938). The First Circuit’s“conflict preemption” theory, however, prevents otherpossessions and territories (e.g., the U.S. VirginIslands, Guam, American Samoa, and theCommonwealth of the Northern Mariana Islands)from enacting legislation to allow their publicutilities to restructure their debts, even though theyare not even arguably covered by Section 903(1) in

any way. See App. 16a n.12 (acknowledging thatthese other jurisdictions “are not expressly includedfor any purpose”) (emphasis added). The decision


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below, in short, unsettles municipal restructuringlaw in ways that go well beyond this case.

B. Background Preemption Principles

Underscore That Section 903(1) Does Not

Preempt The Recovery Act.

The decision below also flouts backgroundpreemption principles that apply with full force toPuerto Rico. In our federal system, “[i]t has longbeen settled ... that we presume federal statutes donot ... preempt state law.” Bond v. United States,

134 S. Ct. 2077, 2088 (2014) (citing Rice v. Santa FeElevator Corp., 331 U.S. 218, 230 (1947)). AlthoughPuerto Rico is not a State, this Court has long“agree[d]” that “the test for federal preemption of thelaw of Puerto Rico ... is the same as the test underthe Supremacy Clause.” Puerto Rico Dep’t ofConsumer Affairs v. Isla Petroleum Corp., 485 U.S.495, 499 (1988).

“Closely related” to the presumption againstpreemption “is the well-established principle that ‘itis incumbent upon the federal courts to be certain ofCongress’ intent before finding that federal lawoverrides’ the ‘usual constitutional balance of federaland state powers.’” Bond, 134 S. Ct. at 2089 (quotingGregory v. Ashcroft, 501 U.S. 452, 460 (1991))(further internal quotation omitted). Thus, “if theFederal Government would ‘radically readjust thebalance of state and national authority, thosecharged with the duty of legislating must bereasonably explicit’ about it.” Id. (quoting BFP v.Resolution Trust Corp., 511 U.S. 531, 544 (1994))

(further internal quotation omitted).Here, the First Circuit applied Section 903(1), a

proviso to a clause that does not apply to Puerto


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Rico, located in a Chapter of the Code that does notapply to Puerto Rico, to strip Puerto Rico of theability to respond to “problems as peculiarly local asthe fiscal management of its own household.”Faitoute, 316 U.S. at 508-09. Yet far from ensuringthat Congress was “reasonably explicit” about such afar-reaching choice, Bond, 134 S. Ct. at 2089(internal quotation omitted), the First Circuitapplied a provision that predates the exclusion ofPuerto Rico from Chapter 9 and does not purport topreempt the restructuring laws of jurisdictions

beyond the scope of Chapter 9.Despite the First Circuit’s protestations to the

contrary, its decision places Puerto Rico in ananomalous “no man’s land” in which its publicutilities lack access to any legal mechanism torestructure their debts, and are thus left wholly atthe mercy of their creditors. See App. 29-31a n.24.The First Circuit declared that Puerto Rico is not insuch a “no man’s land” because it can always askCongress to change the law. See id. But Congress’

power to free Puerto Rico from the current “no man’sland” does not negate the existence of that “no man’sland” in the first place: the point remains that,absent some future Act of Congress, the decisionbelow leaves Puerto Rico powerless to authorize itspublic utilities to restructure their debts under anylaw. If Congress had intended to take soconsequential a step, it surely could and would havesaid so.

Nor is there any support for the First Circuit’ssuggestion that Congress sought to reserve for itselfthe option of authorizing Puerto Rico’s municipalitiesto restructure their debts, on the theory that “[i]f


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Puerto Rico could determine the availability ofChapter 9 for Puerto Rico municipalities, that mightundermine Congress’s ability to do so.” App. 29a; seealso id. (“Congress’s ability to exercise such otheroptions would also be undermined if Puerto Ricocould fashion its own municipal bankruptcy relief.”).

As Judge Torruella bluntly put it, these suggestionsare “pure fiction” without any basis in fact or law.

App. 53a. “There is absolutely nothing in the recordof the 1984 Amendments to justify” the panelmajority’s statements regarding congressional

intent. Id.; see generally Lubben, Puerto Rico & The Bankruptcy Clause, 88 Am. Bankr. L.J. at 578(“[T]here seems to be no good reason why [theexclusion of Puerto Rico from Chapter 9] shouldleave Puerto Rico entirely helpless to address theplight of its public corporations. ... The bondholdersare entitled to insist that that every effort be made tohonor their contracts, but the citizens of Puerto Ricoare also entitled to receive the basic services, likeelectricity, provided by these entities.”).

Finally, the First Circuit erred by declaring thatthe presumption against preemption is “weak, ifpresent at all” in this case. App. 36a. Although theBankruptcy Clause of the federal Constitution givesCongress “the power ... [t]o establish ... uniform Lawson the subject of Bankruptcies throughout theUnited States,” U.S. Const. art. I, § 8, cl. 4, it haslong been settled that this power does not preventStates and Territories from enacting their own lawsgoverning the restructuring of debts, see, e.g., Ogdenv. Saunders, 12 Wheat. (25 U.S.) 213, 368 (1827);Sturges v. Crowninshield, 4 Wheat. (17 U.S.) 122,193-97 (1819); see generally Lubben, Puerto Rico &The Bankruptcy Clause, 88 Am. Bankr. L.J. at 563-


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68. Indeed, during the first century under theConstitution, a federal bankruptcy law was in effectfor a total of only 16 years; it was not until 1898 thatthe precursor of the modern Bankruptcy Code wasenacted. See Bankruptcy Act of 1898, Ch. 541, 55thCong., 2d Sess., 30 Stat. 544 (1898); see generallyHanover Nat’l Bank v. Moyses, 186 U.S. 181, 184(1902) (describing history). During that time, Statesand Territories routinely enacted their ownlegislation governing restructuring of debts. See,e.g., Laws of the Territory of Michigan 333 (1827)

(“An Act for the Relief of Insolvent Debtors”); 1General Law of Pennsylvania 710 (1836) (“An ActRelating to Insolvent Debtors”); 1 Statutes of theState of Ohio of a General Nature, ch. 57, at 456(1854) (“Insolvent Debtors”).

Thus, there is no “dormant Bankruptcy Clause”akin to the “dormant Commerce Clause” thatprecludes States and Territories from adoptingrestructuring legislation absent authorization byCongress. See, e.g., Lubben, Puerto Rico & The

Bankruptcy Clause, 88 Am. Bankr. L.J. at 554, 578.It follows, as this Court has explained, that state andterritorial laws in this area are “suspended only tothe extent of actual conflict with the system providedby the Bankruptcy Act of Congress.” Stellwagen v.Clum, 245 U.S. 605, 613 (1918) (emphasis added).That explains why this Court has long upheld staterestructuring or liquidation laws applicable toentities—like banks or insurance companies— excluded from the scope of the federal BankruptcyCode. See, e.g., Neblett v. Carpenter, 305 U.S. 297,

303-05 (1938) (upholding state statute governingrehabilitation of an insurance company); Doty v.


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Love, 295 U.S. 64, 70-74 (1935) (upholding statestatute governing reorganization of a bank).

Indeed, States and Territories have an especiallycompelling interest in safeguarding the fiscal healthof their own public corporations, agencies, andinstrumentalities. Thus, it was not until 1934 thatCongress first extended the federal Bankruptcy Codeto encompass such entities at all. See Act of May 24,1934, Ch. 345, 73rd Cong., 2d Sess., 48 Stat. 798(1934). And that legislation did not survive judicialscrutiny: in light of background principles offederalism, this Court struck down the law on theground that Congress’ constitutional power overbankruptcy did not extend to this context. See

Ashton v. Cameron Cty. Water Imp. Dist. No. 1, 298U.S. 513, 529-32 (1936). Were the 1934 Actpermitted to stand, the Court declared, States wouldbe “no longer free to manage their own affairs,” and“the sovereignty of the state, so often declarednecessary to the federal system, [would] not exist.”Id. at 531.

It was not until 1938 that this Court firstinterpreted the Bankruptcy Clause to allow Congressto enact a federal municipal bankruptcy law. SeeUnited States v. Bekins, 304 U.S. 27, 51-52 (1938).

And even then, the Court did not overrule its earlierprecedents, but simply held that the statute inquestion (a precursor to Chapter 9) was “carefullydrawn so as not to impinge on the sovereignty of theState.” Id. at 50-51. The Court emphasized that theredrawn statute allowed “[t]he State [to] retain[]control of its fiscal affairs” by permitting municipalrestructuring under federal law “only in a case where


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[the federal restructuring] is authorized by statelaw.” Id. at 51.

And, just four years after upholding theconstitutionality of the federal municipal bankruptcyregime, this Court squarely rejected the suggestionthat the enactment of that regime divested Statesand Territories of the power to enact their ownmunicipal restructuring laws. See Faitoute, 316 U.S.at 508-09. As the Court explained, “[n]ot until April25, 1938, was the power of Congress to afford reliefsimilar to that given by New Jersey for itsmunicipalities clearly established.” Id. at 508 (citingthe date on which Bekins upheld the municipalrestructuring provisions of the federal BankruptcyCode against a constitutional challenge). “Can it bethat a power that was not recognized until 1938, andwhen so recognized, was carefully circumscribed toreserve full freedom to the states, has now beencompletely absorbed by the federal government— that a state which ... has ... devised elaboratemachinery for the autonomous regulation of

problems as peculiarly local as the fiscalmanagement of its own household, is powerless inthis field? We think not.” Id. at 508-09.

Accordingly, there is no basis for the First Circuit’ssuggestion that the presumption against preemptionis “weak, if present at all,” App. 36a, in this case. Tothe contrary, as noted above, a State or Territory’sability to address “problems as peculiarly local as thefiscal management of its own household” lies at thevery core of its autonomy. Faitoute, 316 U.S. at 508-09; see also id. at 512 (“The intervention of the Statein the fiscal affairs of its cities is plainly an exerciseof its essential reserve power to protect the vital


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interests of its people by sustaining the public creditand maintaining local government.”). That is why,as this Court has emphasized, Congress lacksplenary power to enact bankruptcy legislationapplicable to the States’ political subdivisions orinstrumentalities, and why such legislation must be“carefully” tailored to permit States to “retain[]control of [their] fiscal affairs.” Bekins, 304 U.S. at51; see also Ashton, 298 U.S. at 528-32.

II. This Court Should Review This Important

Question Of Federal Law.

As Judge Torruella noted in his separate opinionbelow, “[t]his is an extraordinary case involvingextraordinary circumstances, in which the economiclife of Puerto Rico’s three-and-a-half million U.S.citizens hangs in the balance.” App. 63a (opinionconcurring in the judgment). The First Circuit’sdecision leaves Puerto Rico powerless to restructurethe debts of its public utilities under any law. Thequestion whether the federal Bankruptcy Coderequires this unprecedented and anomalous result is

“an important question of federal law that has notbeen, but should be, settled by this Court.” S. Ct. R.10(c).

As a practical matter, there is no realistic prospectof further percolation of this issue among the lowercourts. None of the other jurisdictions outside thescope of Chapter 9 has enacted its own municipalrestructuring law, so the issue is not presentedelsewhere. Nor is there any prospect of furtherlitigation with respect to the validity of Puerto Rico’s

Recovery Act: unless and until this Court overturnsthe decision below, the Act is a nullity. Because nocircuit split is realistically possible here, there is no


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basis for this Court to defer review pending thedevelopment of such a split.

And it is hard to overstate the importance of thisissue to the future of Puerto Rico and its people. Asthe Governor recently explained, the island nowfinds itself caught in a “death spiral” where it canneither pay nor restructure its debts. MichaelCorkery & Mary Williams Walsh, Puerto Rico’sGovernor Says Island’s Debts Are “Not Payable,” N.Y. TIMES, June 28, 2015, at A1. In the absence of arestructuring regime, individual creditors have everyincentive to “hold out” on any prospective agreementin an effort to obtain more favorable terms, eventhough creditors as a whole may have an interest inworking out a restructuring plan that would enhancetheir collective recovery. See generally App. 10a n.6.The Recovery Act created such a restructuringregime, and the question whether it is preempted bythe federal Bankruptcy Code—which offers PuertoRico no alternative restructuring regime—warrantsthis Court’s review.

Nor is it a practical answer to say that Puerto Ricocan seek relief from Congress. Puerto Rico wouldcertainly welcome legislative relief from itsinexplicable (and unexplained) exclusion fromChapter 9, and has sought legislation to that end.But those long ongoing efforts have thus far provenfruitless—in part because of the furious opposition ofcertain bondholders (especially hedge funds thatpurchased the bonds at a substantial discount andnow seek to make windfall profits in the absence of arestructuring regime). Indeed, Judge Torruella wentout of his way to “take issue with the majority’sproposal that Puerto Rico simply ask Congress for


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relief; such a suggestion is preposterous given PuertoRico’s exclusion from the federal political process.” App. 48a; see also App. 65a (“[W]hen Puerto Rico iseffectively excluded from the political process inCongress, this is asking it to play with a deck ofcards stacked against it.”).

At the end of the day, Congress treated PuertoRico without the dignity due the millions of

American citizens who live there by arbitrarilyexcluding the Commonwealth from Chapter 9, andthe lower courts in this case were equally dismissiveof the Commonwealth’s compelling interest inproviding an alternative means for its public utilitiesto restructure their debts. Before theCommonwealth and its people are left at the mercyof their creditors, they deserve a definitive answerfrom this Court as to whether the Recovery Act ispreempted by federal law.

CONCLUSION

For the foregoing reasons, the Court should grantthis petition for writ of certiorari.


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Respectfully submitted,

CÉSAR MIRANDARODRÍGUEZ

Attorney General

M ARGARITA MERCADOECHEGARAY Solicitor General

DEPARTMENT OF JUSTICECOMMONWEALTH OF

PUERTO RICO

P.O. Box 9020192San Juan, PR 00902

CHRISTOPHER L ANDAU, P.C.Counsel of Record

SUSAN M. D AVIES CLAIRE MCCUSKER MURRAY K IRKLAND & ELLIS LLP655 Fifteenth St., N.W.Washington, DC 20005(202) [email protected]

Documents

PUERTO RICO PETITION FOR WRIT OF CERTIORARI